CHAPTER VI
THE EFFECT OF NON-AGREEMENT OF ACTUAL WITH
PROBABLE LIFE UPON THE DETERMINATION OF
THE DEPRECIATION OR REPLACEMENT REQUIRE-MENT

Depreciation Estimates are Approximations. — Consideration
is now to be given to depreciation as a factor affecting the
required earnings. It is not enough to know what the theoretical
 depreciation will be if estimated from the probable life
of any article. Any article in use may be considered as being
gradually consumed in the service. When no longer useful, it
must be replaced. The replacement requirement therefore must
be estimated. To do this properly something more must be
known besides the cost, probable life, and age. It will be necessary
 to take the condition of the article into account — to
give consideration in other words to the question of whether
it will outlast its probable term of usefulness or not. To disregard
 this fact results in crude approximation and loose methods
 of accounting which are undesirable.
Probable Life is Based on Experience. — The sum of all experience,
 so far as the same has been made a matter of record,
fixes the probable life of various classes of articles. Some articles
 in every class will fail early, others will survive their probable
 life term. When any system of accounting is adopted
under which the capital invested in individualized articles is
to be retired during their probable life, some articles will fail
before their cost is completely amortized and there will be
others continuing to render efficient service after their cost has
been completely amortized. The anomaly results of having to
carry in the accounts a part of the cost of articles no longer in
use but still in the process of amortization and also of having

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